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Dubai Group signs $10B debt restructuring

DUBAI: Dubai Group has signed a $10 billion debt restructuring deal, two sources with knowledge of the matter told Reuters Thursday, bringing an end to the last major hangover from the emirate’s 2009 financial crisis.

Dubai state-linked entities borrowed heavily from banks to fund a spree of acquisitions during the boom years of 2006-08.

But as credit markets dried up following the global financial crisis and a local real estate bubble burst, they found themselves unable to manage their obligations and were forced to renegotiate tens of billions of dollars of debt.

Dubai Group, the investment vehicle owned by the emirate’s ruler, signed the restructuring deal Wednesday, the sources said, speaking on condition of anonymity as the information is not public.

Lenders to the unit of Dubai Holding, which include France’s Natixis and Dubai’s Emirates NBD, still have to sign and return the last piece of documentation and this should happen in the next few days, bringing a formal conclusion to the long-awaited deal, the sources added.

“It’s not perfect, but it’s a major milestone for both the emirate and the banks who were exposed to the Dubai government-related entities,” said one of the sources at a creditor bank.

Dubai Group declined to comment. Dubai Group had been in negotiations with creditors since late 2010 after it missed payments on two debt facilities.

The final deal involves creditors extending maturities for up to 12 years, with the length of time dependent on the level of security against specific debts, so Dubai Group’s assets can recover in value before being sold to meet its obligations.

While the company has signed the document, formal completion will not be for a few days, as lenders have to sign an amended inter-creditor agreement that removes references to the loan secured against Dubai Group’s holding in Malaysia’s Bank Islam, the sources said.

The stake was sold at the end of last year to BIMB Holdings, and the sources said the money from the divestment had now been delivered to those banks who held security against the asset.

Some of these lenders had held off signing the restructuring deal until the cash was placed with them, meaning a target to sign the formal deal by the end of 2013 was missed.

Creditors have two parts to the restructuring document; one part that deals with their specific claim against the company, which has been formally completed, and a second inter-creditor agreement that manages the overall restructuring.

Out of its $10 billion total debt, $6 billion is owed to banks and the remaining $4 billion is classed as intercompany loans.

A version of this article appeared in the print edition of The Daily Star on January 17, 2014, on page 6.

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Dubai Group has signed a $10 billion debt restructuring deal, two sources with knowledge of the matter told Reuters Thursday, bringing an end to the last major hangover from the emirate's 2009 financial crisis.

Dubai Group had been in negotiations with creditors since late 2010 after it missed payments on two debt facilities.

The final deal involves creditors extending maturities for up to 12 years, with the length of time dependent on the level of security against specific debts, so Dubai Group's assets can recover in value before being sold to meet its obligations.

While the company has signed the document, formal completion will not be for a few days, as lenders have to sign an amended inter-creditor agreement that removes references to the loan secured against Dubai Group's holding in Malaysia's Bank Islam, the sources said.